Singapore is being transformed to one of Asia’s most-important financial centers as well as a desirable place to live and work. This is a rejuvenation process that should take Singapore once again to the next level of economic development.

On the economic side, a property recovery started last year, which will be extremely beneficial to the local economy. Singapore has declared that investors who put SGD5 million (USD3 million) or more into the country's financial instruments can become permanent residents; up to SGD2 million (USD1.2 million) of that amount can be used to buy property.

The decision illustrates Singapore’s efforts to increase its appeal as a desirable destination for entertainment and high living standards, thus attracting the affluent from across Asia (e.g., Japanese) who want a personal getaway.

The property story--an investment theme I identified in my premium service, The Silk Road Investor (www.silkroadinvestor.com) in September 2006--is getting better by the day. Singapore has been on the receiving end of strong foreign direct investment (FDI) dollars, which at USD12.6 billion in the first half of 2006 is almost twice as much as the FDI that came in the mid-1990s and early 2000. The government has initiated several projects that will result in the investment of more than SGD15 billion (USD9.8 billion) in the tourism sector during the next five years.

A lot of this money is finding its way to real estate--residences, hotels, malls and offices. The high-end residential area is particularly hot among foreign investors, as they currently account for 60 percent of demand.

This comes as no surprise; in fact, this part of the market should do well in the future, too, as Singapore implements its program for attracting foreign talent to its growing money management industry. This is the main reason prime office rents are rising rapidly in Singapore.

The amount of money under management in Singapore has been growing steadily. It’s expected to grow dramatically in the future as Singapore continues to project itself as a viable, responsible alternative to other banking centers. The interesting statistic, though, is that funds sourced from the Middle East and South Asia grew 30 percent and 56 percent, respectively, year over year.

Because the government is repositioning Singapore as a “global city” in which to live, work or just have a good time, a lot of rich people are being persuaded by their money managers to buy luxury property in the country. As a result, new luxury buildings are popping up, and the price per square foot has surpassed, in some cases, USD2,000.

In an effort to enhance the country’s appeal to foreigners, Singapore has also awarded a big casino development project, the Marina Bay Integrated Resort, to Las Vegas Sands Corp. The resort will be ready to open in 2009. The structure will feature three 50-story hotel towers bridged by a two-acre Sky Garden that will offer 360-degree views of the city and the sea. The resort will also include an arts and sciences museum; 1 million square feet of integrated waterside promenade and a shopping arcade; a state-of-the art, 1 million-square-foot convention center; two 2,000-seat theaters; a casino; and a 4,000-car garage.

Local observers expect Singapore’s population to reach 6 million to 7 million by 2015, from 4.4 million now. That would imply a yearly growth rate of 3 percent, a solid growth number and one that the county’s infrastructure can easily handle. Needless to say, demand for housing and new office space will be huge.

Singapore remains one of the relatively defensive markets in Asia, especially its telecom and bank sectors. The market boasts one of the highest dividend yields in the region at 3.6 percent

Still Bullish On Oil

Long-term readers know that the energy sector has been one of my favorites. I recently added an energy-related Chinese company to The Silk Road Investor Portfolio.

I invited my colleague and energy expert Elliott Gue to analyze this part of the oil business for The Silk Road Investor readers, and I found his insights very interesting. For investors who are interested in the subject, the following is an excerpt from Elliott’s analysis:

Refiners buy crude oil as the feedstock for their operations and produce and sell gasoline, diesel and other refined products. They make money from the spread between crude oil prices and refined products prices, not the price of crude or gasoline alone.

Crude oil isn’t a homogeneous commodity; there are hundreds of different crude oil types found in different parts of the world. Typically, oils are described based on two basic properties--specific gravity and sulphur content. In the petroleum business, the standard measure of specific gravity is American Petroleum Institute (API) gravity; the higher this number, the "lighter" or less dense the crude oil.

The second key terms to understand are sweet and sour. Both terms refer to the sulphur content of the crude oil. Sweet crudes are relatively low in sulphur, while sour crudes have a higher naturally occurring sulphur content.

These measures aren’t meaningless from a refiner’s standpoint. Light crude oils are simpler to refine than heavy crude oils because your typical barrel of light crude oil will tend to yield a higher quantity of useful products, such as gasoline per-barrel refined.

That's why light crude oils tend to trade at a higher per-barrel price than so-called heavy crudes. Similarly, sulphur is a pollutant that must be removed during the refining process; sweet crudes are easier to refine and more expensive than sour grades.

As an example, consider a standard benchmark crude oil, Brent crude. The name comes from the Brent oilfield, located northeast of Scotland's Shetland Islands. Brent crude typically has an API gravity around 38 degrees to 39 degrees and a sulphur content of less than 0.5 percent; it's a light, sweet crude oil.=
In contrast, a common Mexican benchmark crude known as Maya has an API gravity of 22 degrees and a sulphur content of 3.3 percent; it's a heavy, sour crude. The current price of Maya crude is about $45 per barrel, a near $20-per-barrel discount to the price of Brent crude.

Although the yield of gasoline may not be quite as high for these lesser grades, modern refining techniques boost the yield to close to the same level in many cases. Therefore, refiners can actually pay less for their feedstock. That said, there’s no difference whatsoever between gasoline refined from heavy, sour or light, sweet crude.

At this point, you can see the potential for boosting a refiner's profit margins. Not all refiners are capable of refining heavier, sour crude oils; those that are known as complex refiners. Complex refiners have the flexibility to buy cheap, heavily discounted heavy sour grades of crude and covert that oil into valuable refined products; these companies can earn fat profit margins in the current environment.

When evaluating a refining stock, you must look not only at their total throughput capacity but the refiner's ability to process these cheaper feedstocks. This is every bit as important in determining profitability.

Yiannis G. Mostrous is editor of Growth Engines.

© 2007 Yiannis G. Mostrous
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